Figures show almost 16,000 fewer British students started postgraduate courses at UK universities in 2011/12 compared with the previous academic year – an eight per cent drop.

Separate data shows that foreigners now take up more than half of postgraduate places at some universities, with overall numbers across the UK trebling in a decade.

According to The Observer, legal papers submitted by Mr Shannon say: “It is my contention that the effect of the financial conditions of entry is to select students on the basis of wealth, and to exclude those not in possession of it.

“In particular, the requirement for evidence of funds for living costs has a discriminatory effect."

Mr Shannon, from Salford, successfully applied to take an MSc in economic and social history at Oxford last March. He was told the place was conditional on meeting the college's academic and financial requirements.

According to The Observer, he reached the college's academic target after attaining a 2:1 degree from the Open University but was unable to prove he had "resources totalling £21,082" before taking his place.

He successfully applied to the Co-operative Bank for a professional career loan of £10,000 but failed to find the remaining £11,000, claiming he was unable to call on parental help.

Hazel Blears, the former Labour cabinet minister and Salford MP, is backing the student and has secured a Parliamentary debate on the issue of postgraduate costs to be heard on Wednesday.

"Oxford University's demands for a guarantee on living costs are deeply unfair,” she said. “They will price gifted students out of doing these courses and our country will lose out on some really talented individuals.”

St Hugh's, which has filed defence papers to the court, accepts barring the student on financial grounds, but claims the measure is necessary to ensure students can complete their studies. The college lists Theresa May, the Home Secretary, and Aung San Suu Kyi, the Burmese pro-democracy leader, among its alumni.

It has hired a QC to lead its defence and it is feared Mr Shannon could be bankrupted if he loses.

A college spokesman said: "The requirement that postgraduate students provide a financial guarantee in order to take up their course place at the University of Oxford is made clear to potential applicants. The university and college have both made fundraising for postgraduate scholarships a key priority."